The Japanese Yen (JPY) has attracted some buyers after reaching a five-month low against the US Dollar (USD) earlier in the Asian session on Friday. However, a significant recovery remains uncertain due to factors such as the widening US-Japan rate differential and the hawkish stance from the Federal Reserve (Fed).
Key Drivers of JPY Price Action:
Higher-than-Expected Japanese Inflation Data: The release of Japan’s November Consumer Price Index (CPI) data has supported the JPY, as it showed a stronger-than-expected rise. The National CPI climbed 2.9% YoY, surpassing the previous reading of 2.3%. Additionally, the CPI excluding fresh food and energy rose by 2.7% YoY, above expectations. This stronger inflation data keeps alive the prospect of a rate hike by the Bank of Japan (BoJ) in early 2025, potentially in January or March. BoJ Governor Kazuo Ueda reaffirmed that the central bank could raise interest rates if economic conditions and inflation align with its forecasts.
Fed’s Hawkish Signal and US Treasury Yields: The Federal Reserve’s signal to slow the pace of interest rate cuts in 2025 has kept the US Dollar strong. The Fed’s hawkish outlook supports higher US Treasury yields, with the 10-year bond yield rising to its highest level in over six months, which strengthens the USD and puts pressure on the JPY. This continued US-Japan rate differential remains a significant headwind for the Yen, as the USD benefits from higher yields while the JPY continues to grapple with low interest rates.
Risk-Off Sentiment: A modest pullback in US Treasury yields has slightly boosted the JPY, which tends to benefit in risk-off environments. As a safe-haven currency, the Yen finds support during periods of global uncertainty or market volatility, although its recovery remains limited in the face of a stronger USD.
Focus on US PCE Price Index: Traders are now awaiting the US Personal Consumption Expenditure (PCE) Price Index data, the Fed’s preferred inflation gauge, which could provide further insights into the US inflation outlook and potentially impact the USD/JPY pair. A stronger-than-expected PCE could keep US yields elevated, further pressuring the JPY.
USD/JPY Technical Outlook:
From a technical perspective, the USD/JPY pair has shown a strong bullish move, breaking above its previous multi-month top near the 156.75 area. However, the Relative Strength Index (RSI) is nearing overbought territory, suggesting that a period of consolidation or a modest pullback may be necessary before further upside potential materializes.
Immediate Support: The 157.00 level now acts as immediate support. If the pair dips below this level, the next support is near the 156.75 region, with further support at 156.00. A break below 156.00 could bring the pair down to the 155.50 horizontal zone and the 155.00 psychological mark, which could shift the near-term bias towards a bearish outlook.
Resistance and Bullish Targets: On the upside, a move beyond the 158.00 level would signal fresh bullish momentum, with the pair potentially moving towards 158.45 as the next intermediate hurdle. If this level is cleared, the USD/JPY could aim for the 159.00 round figure and the 159.60-159.65 region, with the 160.00 psychological mark acting as a key resistance point. The upper boundary of the multi-month ascending channel near 160.20 should provide strong resistance.
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